Question

1) Use the following graph for a market to answer the question below. Supply Price Quantity Which of the following would best explain why the shift in demand from D1 to D2 would cause price to rise from P1 to P2? A) After the shift in the demand, there would be a surplus at price P2 B) After the shift in the demand, there would be a shortage at price P2. C) After the shift in the demand, there would be a shortage at price P1. D) After the shift in the demand, there would be a surplus at price P1. For the next section, consider the market for Uber rides in East Lansing. For each problem, identify which graph best depicts how supply or demand are affected. D2 Di. 0 (2) sis Q0 (3) 2) A new law substantially increases the penalties for drunk driving and the police resources devoted to catching drunk drivers A) (1) B) (2) C) (3)

Answer 1

1. Answer: Which of the following would best explain why the shift in demand from D1 to D2 would cause price to rise from P1 to P2?

As due to increase in demand, there will be an excess demand at the initial price P1 and hence the demand curve shifts rightward from D1 to D2 and the price rises from P1 to P2. Hence the answer will be:

C. After the shift in the demand, there would be a shortage at price P1.

2. A new law substantially increases the penalties for drunk driving and the police resources devoted to catching drunk drivers

Answer: As a new law substantially increases the penalties for drunk driving, as a result, number of uber rides available will decrease and the supply of uber rides will fall and the supply curve will shift leftward from S1 to S2 and the price of uber rides will increase and the quantity of uber rides will fall. Hence graph 4 depicts this situation. Hence the answer will be:

D. (4)

3. Uber drivers are required to pay a registration fee and pay a special driver's tax every month.

Answer: As Uber drivers are required to pay a registration fee and pay a special driver's tax every month, the number of people applying to become uber driver will decrease and the supply of uber drives will fall and the supply curve will shift leftward from S1 to S2 and the price of uber rides will increase and the quantity of uber rides will fall. Hence graph 4 depicts this situation. Hence the answer will be:

D. (4)

4. East Lansing improves city bus service and makes bus service free on weekends.

Answer: As East Lansing improves city bus service and makes bus service free on weekends, people will demand for more bus services and hence the demand for uber services will fall and the demand curve will shift leftward from D1 to D2 and the price of uber service will fall and the quantity of uber service will decrease. Hence graph 2 depicts this situation. Hence answer will be:

B. (2)

5. New regulations on taxi companies lead to lots of taxi drivers losing their jobs and looking for other sources of income.

Answer: As the New regulations on taxi companies lead to lots of taxi drivers losing their jobs and looking for other sources of income, hence the supply of uber drives will fall and the supply curve will shift leftward from S1 to S2 and the price of uber rides will increase and the quantity of uber rides will fall. Hence graph 4 depicts this situation. Hence the answer will be:

D. (4)